How to maximize your profits as Corning goes to $40

By Cody Willard

The more homework I do on Corning’s stellar quarterly report, the more I like what I see. I don’t expect we’ll ever see a 25x multiple on Corning (much less than 100x multiple it once had in the glory days of the telecom bubble in early 2000), but the 10x forward multiple on this well-run company on the verge of a major and steady growth phase seems much too low. Even after this 10% plus pop this week alone. I think earnings estimates will be closer to $3 for 2012 by the time we get there and that earnings acceleration would likely help expand the mulitple.

It’s for these reasons that I featured Corning as a 9/10 rated stock in my Revolution Investing newsletter and in my brand new eBook, “Cody Willard’s Ten Undiscovered Stocks for the App Revolution” available at http://www.UndiscoveredAppStocks.com.

My analysis on Corning from the Undiscovered App Stocks Report when the stock was more than 10% lower than it is right now still applies:

Analysis
Say it with me — Gorilla Glass. Gorilla Glass. Gorilla Glass. Just five short years ago, Gorilla Glass didn’t even exist as a business line and Corning’s dominance of a smartphone/tablet world wasn’t much pondered or modeled. It still isn’t, but it should be. Of the $7 billion in sales that most analysts expect Corning to generate next year, they’re looking for sales of just over a billion dollars for the Gorilla Glass segment. The business did $400 million in 2009 and we’ll likely see that closer to $1.5 or even $2 billion in sales for Gorilla Glass in 2011.

Earnings estimates for next year are likely too low also, and we could see the company earn upwards or $2.50 in 2012 vs. the $1.90 current estimate. Put a 15 multiple on that and we’re talking about a double or more in this stock in the next twenty-four months. I’ve made a ton of money for readers over the years in Corning, having flagged it as a short from $18 to $1.80 back when the telecom bubble popped and having flagged it as a long from $5 to $15 or so on its climb back up a few years later. This is a must-own for any tech investor for the next five years or so.

And here’s the specific way to trade Corning that I highlighted for subscribers of my Marketwatch Revolution Investing newsletter last week:

I’d once again look at using some long-dated calls to complement a common stock position in the name. The January 2013 $20 calls cost less than $3.50 right now, for example. Remember that you will lose all your capital if the stock doesn’t close above $20 a share before 2013, so only use a tiny bit on that part of the strategy. The flip side of that bet though, would mean a $3500 investment on it could return $10000 if the stock gets to the mid $30s over the next twenty four months. High risk, high reward, so bet small on any call options you use. Or just buy the common stock and let it ride and get the yield and sleep better at night.

Yesterday I noted that those call options were going for $4.25, which means subscribers were already up 20% on that position. Now those same call options are costing $4.90, making for a 40% gain in a week. I think there’s more to come, but I’d slowly scale and build any call option or common stock positions slowly for now. I might also look at the $25 long term call options in addition to the $20 strikes since those are now in the money after this week’s big move in the stock.

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About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.